Tuesday, December 9, 2008

Ringing the Alarm Bell

Call me Cassandra, but I'd like to point to the new Cardinal law #1: Thou shalt not underestimate the political phenomenon better known as Obama. He is not the same ultra-liberal senator we strongly disagreed with. The people he has appointed to key economic positions, (look at Dr. Romer for CEA, Jason Furman, Larry Summers etc.) are in the middle of the political spectrum and certainly qualify as supporters of the free market. They are NOT progressives or any other ultra-liberal flavor! Don't take it from me though, Bush's ex head of the CEA Professor Mankiw writes,

What would you call a group of economists who are skeptical of regulating mortgage markets, who think unemployment insurance and unions increase unemployment, who say that tax hikes retard economic growth, and who believe that the recovery from the Great Depression was a monetary phenomenon rather than the result of New Deal fiscal policy?

No, it is not a right-wing cabal. It's Team Obama.

Here's the evidence:

When Senator Christopher J. Dodd, Democrat of Connecticut, gave his opening statement last week at the hearings lambasting the rise of “risky exotic and subprime mortgages,” he was actually tapping into a very old vein of suspicion against innovations in the mortgage market.....Congress is contemplating a serious tightening of regulations to make the new forms of lending more difficult. New research from some of the leading housing economists in the country, however, examines the long history of mortgage market innovations and suggests that regulators should be mindful of the potential downside in tightening too much.

--Austan Goolsbee

Unemployment insurance also extends the time a person stays off the job. Clark and I estimated that the existence of unemployment insurance almost doubles the number of unemployment spells lasting more than three months. If unemployment insurance were eliminated, the unemployment rate would drop by more than half a percentage point, which means that the number of unemployed people would fall by about 750,000. This is all the more significant in light of the fact that less than half of the unemployed receive insurance benefits, largely because many have not worked enough to qualify.

Another cause of long-term unemployment is unionization. High union wages that exceed the competitive market rate are likely to cause job losses in the unionized sector of the economy. Also, those who lose high-wage union jobs are often reluctant to accept alternative low-wage employment. Between 1970 and 1985, for example, a state with a 20 percent unionization rate, approximately the average for the fifty states and the District of Columbia, experienced an unemployment rate that was 1.2 percentage points higher than that of a hypothetical state that had no unions.

--Larry Summers

Tax changes have very large effects on output. Our baseline specification suggests that an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent.

--Christina Romer (writing with husband David)

Given the key roles of monetary contraction and the gold standard in causing the Great Depression, it is not surprising that currency devaluations and monetary expansion became the leading sources of recovery throughout the world....the new spending programs initiated by the New Deal had little direct expansionary effect on the economy.

--Christina Romer

I'm sounding the alarm bell early here because the more centrist he is the better his/their chances are for 2010, 2012, etc... There are three types of policies/politics, economic, social/cultural, and foreign/national-security. He passed a CinC test already, or perhaps we failed ours. Interestingly enough, or perhaps with little surprise, he is already enraging the left because he is continuing Bush's national security policies, sans Gitmo. He already has come to the center with Israel. If he takes the center/center-right position for economics, what are we left with? Social and cultural politics? Forgive me for saying this but people are sick of Republican culture wars. Most of y'all aren't but now we're in the minority. I’m not saying the Dems are going to rule forever, their party is not competent enough for that. And we all know that the liberal Dems like Pelosi and Reid would be horrible for this country. But in the short run I don't think we've hit bottom. McCain was our best shot this year.
I’m not all doom and gloom though. In order to not have another Clinton we need to figure out how to fight back. I think we need to invent a completely new set of public policies we would pursue. Let me give you some examples: Education, income inequality, global warming, legal immigration… etc.
People want a party with solutions. And even though the do-nothing Dem Congress accomplished zilch from 06-08 who took the blame for that? We somehow did.
Newt Gingrich rebuilt the party by organization through the state level. If we accomplish our goal here we could see that same success. There is a caveat though. Gingrich was a man of ideas and our party became the party of ideas. We need to live up to that legacy as we rebuild.
Lastly let us not forget the lesson of Tony Blair - who snatched the Conservatives' clothes and wore them to victory in 1996. Obama campaigned as a center-left to center-right politician depending on the issue (some issues have no left or right, granted). He is now pivoting skillfully towards center-right. In other words he is browsing through our outfits and picking out what he likes. This is good for us as individuals but not good for our party. Later on I will type what we can learn from British Conservatives like David Cameron who was/is the remedy to the Blair//Brown dominance.

As usual I cross posted this at another blog...http://neighborhoodgop.wordpress.com/

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